The Only Republican in San Francisco

When is "doing something" worse than "doing nothing"?

I am doing my best to understand Keynesian thinking. I have long thought that government-spent money is wealth-destroying by definition. But in the current crisis, I would like to have a sincere understanding of the Keynesian argument, to see if it might be empirically beneficial -- that is, a useful solution in a non-idealized world.

Today, Paul Krugman offers a short hagiography of Keynes, with a tone that intends for his readers to believe the argument is settled and obvious:

The key to Keynes’s contribution was his realization that liquidity preference — the desire of individuals to hold liquid monetary assets — can lead to situations in which effective demand isn’t enough to employ all the economy’s resources. When you don’t understand that principle, you end up writing stuff like this:

Obama’s “rescue plan for the middle class” includes a tax credit for businesses “for each new employee they hire” in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.

That is, if the private sector wouldn’t have created a job on its own, that job shouldn’t have been created — whereas the real choice is between having workers doing something and being uselessly, destructively unemployed.

Fair enough: Krugman makes an empirical claim that idle workers represent a greater threat to the economy than inefficiently-employed workers. But can this be true?

I understand the argument about people being "destructively unemployed", but by having government employ them, we are forcefully transferring wealth from one citizen to another. This transfer might be paid either in the current time frame (by taxation) or in the future (by printing money).

Thus, to put one person to work in this way is to make another poorer. With perfectly efficient and honest government, this is at best zero-sum for the overall economy. Of course, government is far from these things, and so it must be a negative-sum outcome.

While we feel the need to "do something", can we confidently say that a negative-sum solution is worse than "doing nothing"?

In defense of the Obamas' private school choice

Cato (and many others) point out that the Obamas are opting for private schools for their kids in DC. A fine choice, and one might be tempted to say this is an elitist, hypocritical move.

It is hypocritical, perhaps, considering the president-elect's words on education, but I don't worry too much about that sort of navel-gazing. What's important to understand is that it's not actually elitist when you do the numbers.

How can this be? Certainly, only a small, well-to-do minority can afford private school, right?

Actually, we all can. Tuition at the private Sidwell school for the Obama kids is around $25,000 per year. In the case of the DC public schools, the yearly outlay per student is ... around $25,000 per year.

It's a fair bet that Sidwell is offering a considerably better education, for the same amount of money. The difference is in who controls the resources.

Government, and the employees thereof, get paid the same regardless of performance. In the real world, in fact, poor performance might result in more funding. After all, if a government agency is failing to deliver, the issue must be money! (Let's be charitable and call this widely-held belief "unempirical").

In the case of Sidwell, their customers can opt out at any time. They get paid only if their customers (the parents) are satisfied with the product. So Sidwell's success, and its very existence, is coupled tightly to performance in a way that government rarely is.

Obviously, then, the issue is not resources but the model. I wouldn't hire a car mechanic who gets paid the same regardless of outcome. I wouldn't patronize a restaurant that I couldn't "opt out" of the next time. And yet we build an educational system on exactly such a foundation...

Is broadband a public utility?

The Obama transition team has announced the appointment of two net neutrality advocates to guide FCC policy. One, Susan Crawford, has been quoted as saying that broadband is "....like water, electricity, sewage systems: Something that each and all Americans need to succeed in the modern era" while also despairing at "inadequate competition". No doubt that broadband is critical, but should it be treated as a utility?

Pursuing a public utility model while also desiring competition are fundamentally contradictory goals. Utilities are designed not to compete. Do you, or does anyone you know, have a choice of providers for water, sewage or electricity?

My second question would be: is there anyone in the technology world who sees public utilities as a model for innovation?

A 1.5 megabit connection (T1) was an unimaginable luxury when I started in tech in the mid-90's. It was for well-funded companies only. Today, it is a low-end consumer connection and costs around 80% less. Has your sewage service followed a similar trajectory?

A public utility is designed to be "good enough" and little more. There is no need, and little room, for differentiation or progress. Your electricity service is essentially unchanged from 20 years ago, and will look the same 10 years from now. Broadband, on the other hand, requires constant innovation if we are to move forward -- and it has been delivering it, even if we desire more.

Regulations like net neutrality are a big step in the direction of the utility model. It brings the Internet tighter into the bosom of government, and makes many kinds of experimentation illegal. The arbiter of good service is no longer the consumer, but the FCC.

Furthermore, such regulation works precisely against the goal of greater competition. Competition is spurred by lower barriers of entry so that new players can enter the market. A higher regulatory bar ensures that only the biggest companies, with lawyers and lobbying organizations, can participate. If that description reminds you of the current crop of dinosaur telcos, then we are on the same page.

Competition works. I think Crawford and I would agree on that. The question is whether we will pursue policies that bring it.

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See also "Net neutrality locks in the dinosaurs"

Internal combustion boogaloo

Some folks I normally respect have taken on a specious argument equating the financial system bailout with the proposed bailout of the big 3 US automakers. The argument is along the lines of: why do wealthy bankers deserve a break but not everyday autoworkers?

This is specious because no one believes the financial bailout was intended to help all those poor rich kids in the banking industry. Instead, the argument was that a credit wipeout following the failure of the big financial firms would hurt every other business in the country, from hotels to computer firms.

I say this not because I supported that bailout -- I was skeptical to say the least and it's clearly becoming a Soviet-style secret clusterf*ck, pardon my French.

So the comparison is not apples-to-apples, regardless of the merits.

Now, should we bail out the big 3 in order to "save jobs"? No.

Here's the first thing to understand: those jobs are already gone. GM and others have made it clear that they can't continue to pay their workers. The American public has spoken by not buying GM's cars. That's their right, no?

The bailout, therefore, is the economic equivalent of Weekend at Bernie's. But it's not even that original. Let's call it Weekend at Bernie's 2 (Internal Combustion Boogaloo).

Such a bailout is forcing you to buy a GM car that you already said you don't want. Except that you won't actually get a car, of course.

Welcome to the new conformity